Morning Read: Size Drives This ETF of New Companies

By Brendan Conway

Market check: Index futures point slightly higher and yield on the 10-year Treasury bond is rising 0.5% to 2.60%. The price of gold futures is fractionally higher at $1,317.50.

Fund watch: This weekend’s ETF Focus column in the print edition of Barron’s argues the Renaissance IPO ETF (IPO), which launched to heavy demand last week, isn’t as speculative as the name suggests. This fund isn’t about betting on big first-day pops in new stocks: It instead owns the biggest newly public firms’ stocks for their first two years. This group isn’t well understood, thanks to Wall Street quiet periods, investor disinterest and the stocks’ absence from major indexes. From the column: “University of Florida economist Jay Ritter found three decades of outperformance (1980-2011) in IPO stocks with the biggest sales revenues before they go public. If a company sells a lot of products, it’s certainly less likely to be a Pets.com-type disaster. While this may sound obvious, it’s tough to put into practice.” The Renaissance ETF is market-cap weighted, which except in the frothiest markets should correlate with sales. By that measure, top-weighted stocks Facebook (FB), Pfizer’s (PFE) pet-and-livestock medicine spinoff Zoetis (ZTS), and restructured auto supplier Delphi Automotive (DLPH) make up almost one-third of the portfolio as of this week.

About Focus on Funds

As exchange-traded funds and other investing vehicles have ballooned in number, the task of figuring out what works well and what doesn’t has only gotten harder. Barrons.com’s Focus on Funds looks under the hood of ETFs, mutual funds and hedge funds for overlooked values, actionable ideas and the latest pitfalls for fund investors.